Markets In La-La Land

President Biden and Secretary of the Treasury Yellen are falling on their swords these days in re inflation.  And then again, they aren't.

They do acknowledge that "transitory" was an unfortunate term to use when describing inflation just a few months ago, but they vehemently deny that it was caused by the enormous amount of money printed and distributed in 2020-22.  Instead, they blame the pandemic, supply disruptions and - naturally - the war in Ukraine.  It is truly a rather disingenuous pass-the-blame game, because...

Inflation was already at 7.5% in January 2022 (red dot on the chart) - before the war started -  fueled  by sharp price increases in energy, food, metals and other basic commodity prices.

Inflation Soared Well Before The War

Global commodities are priced and paid for almost entirely in dollars (some are in euros, too).  Commodity production and supply is limited by physical constraints, whereas dollars aren't.  Money is created instantly by politicians (you can forget about independent central banks, they no longer exist). Thus, any sane commodity producer (Putin included) is most definitely going to raise nominal prices for his/her goods, to reflect the flood of new money sloshing about.  And that's why the Fed needs to proceed firmly and fast with sopping up the excess via Quantitative Tightening, as well as raising interest rates.

The stock market is attempting to stabilize these days, egged on by analysts who focus on core inflation ex energy and food.  Again, a disingenuous argument when people's budgets are ravaged by huge price increases on necessary items like gasoline, electricity, gas and food.  Target's announcement yesterday about inventory mark downs is very illuminating.  There will be more of that coming once the summer season is over and folks are done with spending on long-delayed vacations, eating out, etc.  A friend at a large restaurant in Florida is already reporting a very sharp un-seasonal drop-off in business, after experiencing a blow-out winter. People are definitely tightening up.

But markets are whistling past the graveyard, or living in La-La Land.